ȁȇ Partʺ: EconomicsĻese kinds include what F.A. Hayek (ȀȈȃȄ) called “knowledge of the par-
ticular circumstances of time and place,” knowledge that could hardly be
codified in textbooks or assembled for the use of central planners, knowl-
edge that can be used, if at all, only by numerous individual “men on the
spot.” It includes knowledge about all sorts of details of running business
firms, including knowledge of fleeting local conditions. It includes what
people know about their own tastes and particular circumstances as con-
sumers, workers, savers, and investors. Subjectivist economists recognize
how such factors not only underlie the prices that consumers are prepared
to pay for goods but also underlie costs of production.
Each consumer decides how much of each particular good to buy
in view of the price of the good itself, the prices of other goods, his
income and wealth, and his own needs and preferences. Subject to qualifi-
cations about how possible and how worthwhile precise calculation seems,
he leaves no opportunity unexploited to increase his total satisfaction by
diverting a dollar from one purchase to another. Under competition, the
price of each good tends to express the total of the prices of the addi-
tional inputs necessary to supply an additional unit of that good. Ļese
resource prices tend, in turn, to measure the values of other marginal out-
puts sacrificed by diversion of resources away from their production. Prices
therefore tell the consumer how much worth of other production must be
forgone to supply him with each particular good. Ļe money values of for-
gone alternative production tend, in turn, to reflect consumer satisfactions
expectedly obtainable from that forgone production. (I say “reflect”—take
account of—in order not to claim anything about actual measurement of
what is inherently unmeasurable. I speak only of tendencies, furthermore,
for markets never fully reach competitive general equilibrium.)
With prices bringing to their attention the terms of choice posed by
the objective realities of production possibilities and the subjective reali-
ties of other persons’ preferences, consumers choose the patterns of pro-
duction and resource use that they prefer. Ļeir bidding tends to keep any
unit of a resource from going to meet a less intense willingness to pay for
its productive contribution (and thus the denial of a more intense willing-
ness). Ideally—in competitive equilibrium, and subject to qualifications
still to be mentioned—no opportunity remains unexploited to increase
the total value of things produced by transferring a unit of any resource
from one use to another. Changes in technology and consumer prefer-
ences always keep creating such opportunities afresh, but the profit motive
keeps prodding businessmen to ferret them out and exploit them.